Evidence on the Joint Determination of Audit and Non-Audit Services

Whisenant, Scott; Sankaraguruswamy, Srinivasan; Raghunandan, K.

doi:10.2139/ssrn.306741

Cited by 8 publications

(8 citation statements)

References 7 publications

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“…Whisenant et al (2003) argue that to the extent that audit and NAS fees are jointly determined, the residuals will be correlated and single-equation estimations violate the independent error term assumption of OLS. However, although there are clear a priori reasons to expect audit and NAS fees to be endogenous and the literature on audit and NAS pricing suggests that the services are interrelated, Whisenant…”

Section: Plementioning

confidence: 99%

“…However, the picture changes when allowance is made for the possible endogeneity of audit and NAS by modelling both sources of audit firm revenue in a simultaneous equations framework. Whisenant et al (2003) apart, prior research has not explicitly addressed this endogeneity issue. When allowance is made for endogeneity, we find that NAS is an increasing function of the audit fee and that audit fee is also increasing in NAS.…”

Section: Accounting and Business Researchmentioning

confidence: 99%

“…One rationale for the joint provision of audit and NAS by accounting firms is the existence of economies of scope generated by the two services in association with 'knowledge spillovers' (Simunic, 1984;Antle et al, 1997;Whisenant et al, 2003). Knowledge spillovers are a form of external economy 'arising from providing audits and NAS as joint products' (Abdel- Khalik, 1990, 296).…”

Section: Non-audit Servicesmentioning

confidence: 99%

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The determinants of the UK Big Firm premium

McMeeking

Peasnell

Pope

2006

Accounting and Business Research

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Our study attempts to determine whether. and if so why. the large auditing firms are able to earn ;I premium on their audit worh in the UK. We start by confirming the apparent existence of a Big Firm premium during the period 19x5-2002. We e x m i n e industry specialimtion. non-audlt service fee and monopoly pricing explanations for the premium. The results of our tests of industry specialisation are mixed. There is little evidence that this premium is associated with industry specialisation when specialists are defined at the national level. Significant preniia are observed if specialisation is defined at the city level. particularly if the auditor is the industry leader. However. when appropriate allowance is made for endogeneity. by modelling both audit and non-audit fees in a siniultmx)us equations framcworh. the Big Firm premium disappears. We find evidence to suggest that non-audit fees earned by auditors from their audit clients are positively related to the size of the audit fee and vice versa. Finally. when the sample is stratified by the s i x of audit client. we find no systematic evidence of anti-competitive pricing.

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Section: Plementioning

confidence: 99%

Section: Accounting and Business Researchmentioning

confidence: 99%

Section: Non-audit Servicesmentioning

confidence: 99%

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The determinants of the UK Big Firm premium

McMeeking

Peasnell

Pope

2006

Accounting and Business Research

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“…A client's financial condition can be measured by the ratio of current assets minus the inventory to current liabilities (QUICK), earnings before interest rate and tax divided by total assets (ROA), these two ratios are expected to be negatively related to audit fees, current year loss (LOSS) and long-term debt to total assets (LEV), are expected to be positively related to audit fees, based on Niemi (2002), Whisenant, Sankaraguruswamy and Raghunandan (2003) studies.…”

Section: Methodsmentioning

confidence: 99%

Audit fees and financial crisis: Evidence from the spanish manufacturing industries

Almeida

Silva

2019

CyA

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“…Although much of the debate regarding independence and audit quality has focused on NAS fees, prior research (e.g., DeFond et al 2002;Whisenant, Sankaraguruswamy, and Raghunandan 2003;Basioudis et al 2008) notes that any examination of the influence of NAS fees must also include concurrent testing of the impact of audit service fees. Some earlier studies (Geiger and Rama 2003;Basioudis et al 2008) find a positive association between audit fees and GC decisions on financially distressed firms.…”

Section: Background and Hypothesesmentioning

confidence: 99%

Auditor Fees and Going-Concern Reporting Decisions on Bankrupt Companies: Additional Evidence

Read

2015

Current Issues in Auditing

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SUMMARY The recent growth in non-audit services (NAS) at the major audit firms has the attention of auditing regulators. On several occasions recently, board members of the Public Company Accounting Oversight Board (PCAOB) have indicated that the rise in NAS may place auditor independence at risk (Harris 2014; Tysiac 2014). Impaired independence can result in audit failure, which includes situations when auditors fail to issue going-concern (GC) audit opinions to soon-to-be bankrupt companies. In this paper, I examine the association between the propensity of auditors to issue GC opinions and NAS fees (and audit fees) to 203 bankrupt companies during 2002–2013. In analysis, I find no significant relation between GC decisions and NAS fees and audit fees. My results may interest U.S. regulators, who recently expressed concerns about the threat to auditor independence from the spike in NAS at the major firms. Data Availability: Publicly available from sources identified in the paper.

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Evidence on the Joint Determination of Audit and Non-Audit Services

Cited by 8 publications

References 7 publications

The determinants of the UK Big Firm premium

The determinants of the UK Big Firm premium

Audit fees and financial crisis: Evidence from the spanish manufacturing industries

Auditor Fees and Going-Concern Reporting Decisions on Bankrupt Companies: Additional Evidence

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